Cash for Infrastructure

Cash for Infrastructure

It’s to the business leaders’ credit that they recognize the importance of government support for energy innovation and the need for “a national energy strategy.” Nonetheless, this is politically volatile stuff. The American public, and many politicians, are likely to have little appetite for the prospect of quasi-public corporations or “expert boards” running the nation’s energy policy.

Meanwhile, any comprehensive plan for energy innovation will need to deal with a simple technology fact: most existing alternatives to fossil fuels are currently too expensive to replace them to any significant degree. And yet the transition to lower-carbon fuels must begin immediately if the direst effects of global warming are to be avoided. Many economists favor carbon pricing, in the form of a direct carbon tax or a cap-and-trade system; either would effectively force companies to pay for carbon pollution, raising the cost of fossil fuels and making alternatives more competitive. But even some of the strongest advocates of carbon pricing acknowledge that, as Harvard economist Robert Stavins said in a recent interview, it is “essential but not sufficient.” In other words, we’ll still need energy innovation.

Of course, an “energy miracle” is always possible (see Q&A), but to count on a radical breakthrough is to ignore the immediacy of global warming–and the amount of time it takes to fully commercialize energy technologies. A technology that’s still in a researcher’s lab or on a venture capitalist’s whiteboard is at least a few decades from making a major impact on climate change. If the climate scientists are right, any such solution will be too little, too late.

To reduce carbon dioxide emissions during the coming decades, “it’s all about large-scale deployment of low-carbon technologies,” says Richard Lester, the founding director of MIT’s Industrial Performance Center and head of its nuclear science and engineering department, who has spent the last several years on a project to design a more effective energy innovation system. The problem, he says, is that “those technologies today are too costly.”

One of the central questions in formulating an effective innovation strategy, Lester says, is how to “bridge the cost gap” between cheap fossil fuels and more expensive low-carbon energy sources. “Our conclusion is that there is no possibility of financing this cost gap in the early stage of deployment of these new technologies with the traditional federal budget appropriations process,” he says. “It is just too expensive.” Lester adds, “It really makes sense for the users to pay for it. That will be very unpopular, but I don’t see any way to proceed otherwise.”

The good news is that innovation can bring down the cost of new energy technologies. One of the virtues of the stimulus bill is that it allocates money both to energy research and to deployment; its most creative programs, such as ARPA-E, attempt to combine those objectives. But the success of these investments will be determined by whether they actually turn out to be the initial stages of a comprehensive energy plan. Formulating such a plan will mean studying the growing body of academic research on the most effective ways to encourage innovation. It will mean making some unpopular choices, and it will be expensive.

A year and a half after the stimulus funding began, the mood in Washington has turned frugal. The DOE’s proposed budget for 2011 does request increases for energy R&D, but there’s little talk of spending additional tens of billions of dollars to support the demonstration of new energy technologies. Without such investments, the projects that got their start with stimulus funding could languish. Rather than laying the foundation for a new energy infrastructure, they will continue to represent mere possibilities for clean technology.